August 13, 2014 - After a long string of steel sheet price increases failed to hold in recent years, the resilience of elevated 2014 pricing has caught some market participants by surprise.
That staying power has been supported by improved demand, according to Olympic Steel Inc. Chairman and CEO Michael Siegal.
“Market conditions in 2014 feel much more like those of an expanding economy rather than the sputtering economy we have experienced in recent years,” he said during an Aug. 7 earnings call.
Doug Handler, chief economist for IHS Global Insight, a Lexington, Mass.-based consultancy, issued an Aug. 13 report titled “That Rebound We’ve Been Talking About? It’s Here.” In it he cites that U.S. gross domestic product expanded by 4 percent during the second quarter.
“To get a better handle on the true underlying growth rate of the economy, we can look at real final sales to domestic purchasers, a metric that excludes the sharp trade and inventory fluctuations that drove much of this [prior] volatility, and completely dismiss the first quarter as an aberration due in part to the weather,” Handler says.
Olympic, challenged during first quarter by harsh weather and supply disruptions, reported its highest quarterly sales level ever April through June.
“We’re seeing demand growth across a wide spectrum of our customer base led by industrial machinery and heavy equipment manufacturers,” said Siegal. “Our customers tell us they are optimistic going into the second half and steel producers announced another price increase in late June.”
Regarding aluminum sales, “we’re seeing increased activity in the automotive sector ... supplying to Tier II and Tier III auto stampers. We believe the lightweighting trend has staying power and the relative proportion of aluminum content in vehicles will increase in future model designs,” Siegal predicted.
Separately, the tube and pipe business recorded increased sales and volumes through the first half and expects pricing will catch up in the second half.
Olympic shipped 17 percent more flat-rolled products in second quarter 2014 vs. a year ago, the highest volume quarter for such products since early 2008. Volume was up 10 percent through the first half of this year.
“Steel prices have been buoyant all year due in part to strength in underlying demand. We’re hearing from a number of our customers that they are optimistic, which reinforces our belief that the economy is finally entering a period of sustainable growth,” Olympic President and COO David Wolfort said.
The only metals consuming markets in which demand is weak are defense and other government spending, and mining, according to Siegal.